Bankruptcy Trustee Surety Bond
When someone declares bankruptcy, a bankruptcy trustee has the responsibility of verifying their financial information and bankruptcy claims, and the responsibility to collect assets on behalf of creditors. It's an important and sensitive role, which is why courts require bankruptcy trustees to have a specialized kind of fiduciary bond.
What is a Bankruptcy Trustee Bond
It works like a guarantee that a bankruptcy trustee will act lawfully and ethically or else be held financially accountable. When a creditor believes a trustee has not acted properly, they may file a claim against the bond seeking damages. The company backing the bond agrees to compensate all valid claims. By ensuring that trustees take responsibility for misconduct, bonds create a strong incentive to work within legal requirements.
How does a Bankruptcy Trustee Surety Bond work?
If a creditor feels a trustee has acted improperly - by embezzling funds for example - they file a claim against the bond. The bond company will then investigate the claim, and if it holds up, the surety will pay up to the bond penalty amount to settle the claim.
Bankruptcy Trustee Bond Types
Trustees may need a different kind of bond depending on the circumstances of the bankruptcy:
- Chapter 7 trustee bonds - When the trustee is authorized to liquidate and distribute assets.
- Chapter 11 trustee bonds - When a trustee is authorized to reorganize a business.
- Chapter 12 and 13 trustee bonds - When a trustee is authorized to "adjust" the debts of someone who owes money.
Who should get a Bankruptcy Trustee Surety Bond?
Federal bankruptcy law stipulates that all trustees must have a bond. The bankruptcy proceedings cannot proceed without a trustee in place, so it's important to secure a bond as early as possible to avoid unnecessary delays.
Who are the parties involved in a Bankruptcy Trustee Bond?
There are always three parties in a surety bond agreement:
- Principal - The bankruptcy trustee.
- Obligee - The bankruptcy court. If the surety settles a claim, the obligee distributes those funds to the creditors involved.
- Surety - The company that issues the bonds and backs the payment.
How much does a Bankruptcy Trustee Bond cost?
The cost is a small percentage of the amount, which is set by the courts. How much a specific trustee pays depends on that person's credit and financial history.
How are claims handled for Bankruptcy Trustee Surety Bonds?
Surety brokerages take claims seriously and investigate each one to ensure the claims have merit. When they do, the surety agrees to compensate the claimant up to the total value of the bond. Depending on the circumstances of the claim, the principal may also owe money to the surety for interest or associated costs.
How to apply for a Bankruptcy Trustee Bond?
Applying for a bond starts by completing a standard bond application with information about your financial strength and credit history. You will also need to supply the court documents outlining the bond requirements, and any other documentation the surety requests.
Viking Bond Service - Nationwide Leader In Fiduciary Bonds
The courts take bonds seriously and you should too. Work with a team that makes the bonding process accessible and affordable. You can connect directly with Viking Bond Service through the contact form on this page or by calling 888-278-7389.
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